Schwarzenegger cited a July state auditor report that criticized significant increases in staff salaries and escalating disciplinary system costs despite a drop in cases. The governor also noted the discovery that a former Bar employee had embezzled $675,000 over eight years.

“As the organization charged with regulating the professional conduct of its members, the conduct of the State Bar itself must be beyond reproach,” Schwarzenegger wrote in an unusually lengthy veto message. “Regrettably, it is not.”

The governor takes on JNE, after the jump.

The governor also took a shot at the Commission on Judicial Nominees Evaluation’s handling of Chuck Poochigian’s nomination to the Fifth District Court of Appeal. JNE’s “not qualified” rating was leaked prior to his conformation hearing, and the chief justice railed against the panel for not giving adequate weight to Poochigian’s tenure in the Legislature.

JNE “has damaged its reputation for impartiality and, in turn, the State Bar’s,” Schwarzenegger wrote. “… The State Bar cannot continue with business as usual.”

State Bar President Howard Miller called the governor’s veto “regrettable” but called many of his criticisms “justified.”

“Events such as his veto message can challenge the State Bar to renew itself as an institution and its service to the public and the legal profession,” Miller said in a prepared statement. “I am confident the Board of Governors is up to that challenge.”

Miller said by telephone that he’d have more to say later about the financial consequences of the governor’s veto. The annual bill would have set 2010 active member dues at $410, maintaining the current levels.

Gov. Pete Wilson vetoed the annual dues bill in 1997, slamming the Bar for delving too deeply into politics. In the following months, the Bar, having lost its largest source of revenues, laid off nearly 500 employees and all but mothballed its disciplinary activities.

A protracted stalemate doesn’t seem likely this time. Miller has taken a more conciliatory tone, and Schwarzenegger suggests that, if the Bar addresses his concern, he’ll sign a new dues bill early next year.